What Is Federal Income Tax Used For?

Allison Martin
tax money

Each year in April, grumbles from taxpayers about having to pay federal income taxes bounce through the walls of most American homes. Despite their annoyance, however, federal income taxes support many public agencies, utilities, and programs.

How Are the Funds Used?

Federal income taxes are used to pay for virtually anything under the sun. Each year, the federal government must fund billions of dollars worth of programs and does so through federal income taxes. It collects taxes and then disburses them according to the budget agreed upon by both chambers of Congress and the President.

Initiatives Supported

According to the 2014 Taxpayer Receipt, issued by the White House, federal income tax dollars were used to support the following initiatives:

Initiative Programs/Services
Healthcare

Medicare Supplementary Medical Insurance (including the prescription drug benefit)

Medicaid

Children's Health Insurance Program (CHIP)

Food Safety and Disease Control

National Defense Military personnel operations and procurement
Job and Family Security

Unemployment insurance

Food assistance

Tax credits

Programs that facilitate income security

Net Interest Interest on Treasury debt securities
Veteran's Benefits

Healthcare for veterans

Disability compensation

Pensions for veterans

Education for veterans

Home loans for veterans

Education and Job Training

Financial aid

Special education

Job training

Immigration, Law Enforcement, and Administration of Justice

Border patrol

Immigration

Enforcement

Litigation

Federal judiciary

International Affairs

Embassies

Exchange activities

Humanitarian aid

Natural Resources, Energy, and Environment

Water management

Energy supply

Pollution control

Science, Space, and Technology Programs

General science

Basic research

Space program

Agriculture

Agricultural research

Crop insurance

Agricultural subsidies

Community, Area, and Regional Development

Community Development Fund

Operation of Indian programs

Neighborhood Stabilization Program

Rural Water and Waste Disposal Program

Response to Natural Disasters

Small Business Administration disaster loans

FEMA grants

Additional Government Programs

Transportation

Commerce

Mortgage credit

Governmental administration

Overall Federal spending

Total federal expenditures for 2015 were $3.7 trillion, reports the Center on Budget and Policy Priorities. Spending for 2015 breaks out as follows:

  • Healthcare initiatives (including Medicaid, the Children's Health Insurance Program (CHIP), Medicare and Affordable Care Act subsidies) - 25 %
  • Social security - 24%
  • Defense/assistance for international security - 16%
  • "Safety net" programs (including Earned Income Credit, SSI, food stamps, and other federal assistance for those with low incomes) - 10%
  • Interest payments (on the National Debt) - 6%
  • Benefits for federal retirees and veterans - 8%
  • Education - 3%
  • Infrastructure for transportation system - 2%
  • Science/medical research - 2%
  • Other - 4%

What Is Federal Income Tax?

The federal income tax is levied on any and all income earned by citizens in the United States. Citizens living abroad must pay taxes on their income, as well. The amount of the tax depends on the amount of income the taxpayer earned in the past year, increasing as their income increases. This is why the American tax system is referred to as a 'progressive tax,' in contrast to a 'flat tax' in which all taxpayers pay the same amount, regardless of income.

The total income tax is usually split evenly between employers and employees. Employers deduct a portion of the entire percentage of income taxes due from each paycheck. Self-employed and freelance workers are responsible for paying the entire amount of the tax quarterly.

Income Tax Controversy

Bring up the federal income tax if you want a conversation to become heated quite quickly. Perhaps few other issues create the kind of controversy that income taxes do. This is mainly because there is no specific provision in the Constitution stating that individuals have to pay tax on their income. What exists instead is a provision allowing the federal government to tax as it deems necessary to support itself or its programs provided that the taxed in individuals are represented. This is what "no taxation without representation" means.

Why Should I Pay Taxes?

While paying taxes is not fun, there is a legal obligation to do so. However, this is not the only reason to pay taxes. As pointed out on Reference.com, "taxes are vital to support the infrastructure that citizens rely on." From roads to national defense and more, taxes fund necessary programs that could otherwise not exist.

What Is Federal Income Tax Used For?